Selecting a Marketing Advisory Firm and What to Expect
Selecting a Marketing Advisory Firm
In attending various seminars about grain marketing and/or commodity trading farmers will hear many different ideas of how to market their crop. Some market analysts may suggest avoiding storing grain, while other analysts recommend always selling cash grain at harvest and buying options. Blanket strategies will not always guarantee a profit. The market varies from year to year and farmers need be aware of the opportunities the market is willing to offer.
With all the different ideas on marketing, finding the best marketing advisory firm can be challenging. In today’s ever-changing agriculture industry, it could be the most important decision a farmer will make. Here are some guidelines that are important when selecting an advisory service.
- Ask for references from customers who live in your area. If you know someone who is/has been working with that firm, ask them about their impressions of the service.
- Get someone who understands your local basis and your local markets. If your advisory firm doesn’t know the seasonality of your market basis patterns, storage costs, and local shipping/handling facilities, it will be difficult for them to give you good marketing advice.
- Never do business with someone who claims they know with certainty what a futures market will do. No one knows for certain. Advisory firms should weigh potential risk against potential rewards. If your advisory is 55–60% accurate consistently on futures market price forecasts, they’re probably doing a good job for you.
- Avoid a broker/adviser who doesn’t understand risk. To be successful, you must always know your risk in a market position.
- Make sure the broker understands the difference between hedging and speculating. Look for a brokerage firm that specializes in hedging.
- Look for a firm that offers advisory service plans on a performance base fee. With this plan, if the producer doesn’t make money on the firm’s recommendations, they don’t pay the fee.
- Be cautious of nonrefundable fees. If the service believed in its market advice or approach, they should have a “satisfaction guaranteed” clause that allows you to cancel at any time after the sale and receive a refund for unused services.
- Beware of customer confidentiality agreements. Every brokerage firm is licensed with the CFTC (Commodity Futures Trading Commission) and a member of the NFA (National Futures Association) and they are required to honor customer confidentiality rules.
Ask questions about how the advisory service will help you market its grain (some good answers would include using basis, spreads, seasonality, or risk management to accomplish some goal).
What to Expect from a Marketing Firm
If your broker/analyst isn’t honest (both with himself and with you), you probably don’t want him/her as your broker. Remember, no one knows with certainty what a market will do. If your firm claims they do, you are both in trouble. In fact, we believe there are two types of traders who trade markets: those who don’t know what the markets will do, and those who don’t know they don’t know what the market will do. In other words, no one knows what the market will do. Anyone who thinks they do is just mistaken and wrong. Generally, the people who make the best market decisions (and therefore the most money) are those who understand market uncertainty and deal with it—generally by understanding both their risk and potential reward. Those that do the worst in marketing are those who foolishly convince themselves they know for certain what will happen. They take foolish risks and can’t make adjustments when they are wrong.
Expect Some Mistakes
No one is perfect, and no advisory firm is perfect. If anyone could pick the market top with any certainly, wouldn’t the market game be easy? Picking both tops and bottoms is not realistic as a marketing goal. Instead, have a goal of steady, attainable success (like getting consistently in the top one half of the market).
Beware of “Get Rich Quick” Schemes
We’ve never seen this work for virtually any businessman, but especially for futures hedgers/speculators. The successful traders/hedgers are those who work hard at it and are very precise in their market analysis and actions. On a side note, have you ever met anyone who “got rich quick” and kept the money? Generally, when someone does acquire money by a one-time bolt of sheer luck, it doesn’t take long for the money to disappear. Most wealth is earned, especially the wealth that lasts. Some wealth is made by ideas or inventions, some by doing something better than anyone else, and some by sheer hard work—but it’s usually earned. And wealth that has been earned is usually kept too, not blown quickly.
Look for a Marketing Firm Interested in a Long-Term Relationship
For hedging, look for a firm interested in your long term success, in other words, your entire farming career, not someone looking for excitement. Usually excitement in markets means taking stupid risks (usually while trying to pick a market top). Good marketers (or even speculators) aren’t interested in taking stupid risks. Long-term success usually is less exciting than short term success, but always is more satisfying.
NOTE: The above are opinions of Progressive Ag and are not supported by specific research. The intent is to help you market cash grain more effectively, as the rules are intended for cash sales decisions. The underlying basis is not scientific law. As always, future trading implies risk, and there are no guarantees that using these rules will produce profits.